Financial Communique » bonds

Fed owns higher state debt than China

Viliyana Filipova — Wed, 02 Feb 2011 19:45:46 +0000

The Federal Reserve (Fed) surpassed China and is now the largest owner of U.S. federal debt, although it has not gotten half the bonds worth 600 billion dollars from the program announced in November for the infusion of liquidity. On Thursday last week the Fed has held U.S. bonds to 1.108 trillion dollars. According to the latest data on foreign creditors of the U.S., the government bonds, which China holds are about 896 billion dollars, and for Japan – to 877 billion dollars.
“By June the Fed has accumulated to U.S. bonds worth 1.6 trillion. dollars – roughly the total U.S. debt held by China and Japan combined, “said Richard Gilhuli, strategist at TD Securities. Fed surpassed China as the largest creditor of the U.S. government a few months ago, “he notes. Fed buys U.S. debt in two programs. The largest is the program for injection of liquidity known as the QE2, which was launched in November and the buying of U.S. bonds to 600 billion dollars by June. Fed buys U.S. bonds and also for $ 30 billion each month, reinvest the payments of mortgages it holds. By June the Federal Reserve plans to acquire federal debt of $ 800 billion in both programs. Since November he bought bonds of 284 billion dollars. Fed provides 67% of bonds purchased QE2, have a maturity of between 4.5 and 10 years. Only 5% of acquired so far are bonds with a maturity longer than 17 years. Last Friday, the yield on 30-year U.S. Treasuries briefly climbed to their highest levels since April.
“The end of the QE2 will be a big test because yields on U.S. debt will probably increase after the Fed stops to buy bonds,” said David Allen, strategist at CRT Capital. “We still do not know whether this increase will be 20, 30 or even 50 basis points,” he said. Total world’s central banks hold U.S. bonds to 2.604 trillion. dollars. After intensified the pace of buying in June, when they have bonds to 2.250 trillion. dollars in November, when the Fed started Q2, central banks retain their positions in U.S. bonds at around 2.6 trillion. dollars. This indicates that after the intervention of the Fed’s other central banks have reduced the pace of buying the U.S. debt. Before the financial crisis, the Fed held the bonds to 775 billion dollars. This amount was reduced to 300 billion dollars in the first half of 2008, when the Fed sold bonds in an attempt to stabilize the financial system. The first program for injection of liquidity, launched in 2009 was about $ 300 billion.

100-years bonds is the next challenge for the investors

Viliyana Filipova — Sun, 22 Aug 2010 12:26:25 +0000

The investors spend their money in bonds, are willing to invest money in almost anything you offer them market. In this situation, bankers are willing to undergo a test that claim – through the issuance of bonds maturing in 100 years, says the Wall Street Journal. Bonds with longer period as is considered very exotic, they may be issued only by the most powerful companies in the world – those that can be expected that the next century will be on the market. Hundred bonds were in fashion in the mid 90’s and the beginning of the century, when several companies were able to put such issues. Most of them were released in 1993, 1996 and 1997. This type of instruments are used quite rarely, because the issue should be offered a serious premium over 30-year bonds. The current record low historical interest rates lure companies to issue long-term debt. The reason for this is that companies can borrow cheap loans from banks and do not have to pay higher interest on bond issues. If issued, 100-year bonds will pay principal prior to 2110 – the year in which in all likelihood, today’s investors will be among the living. The main risk in these securities is that interest rates can jump so as to reset the bond face value. In view of market developments over the past decades, so it’s not sounds amazing. That is the reason for the skepticism, which sees the desire to place such term bonds.
“I think it would be a challenge,” said Marc Olin, head of corporate finance division in the United States of Fitch Ratings. “Given the volatility of world markets credit risk of 100-year bonds and expectations that at a time interest rates will probably increase will probably drive away investors,” he said. This did not stop some bankers insist that they must be placed with such financial instruments. They point out that currently the situation is excellent for the issuance of 100-year bonds of companies with high reputation. Among companies which have so far allowed the issuance of its 100-year debt, are Coca-Cola Enterprises, Anadarko Petroleum, Apache, Burlington Northern Santa Fe, Walt Disney, Ford, IBM and others. For most bonds coupon payment is between 7 and 8 per cent.

Greece launches 10-year bonds with high yield

Viliyana Filipova — Thu, 04 Mar 2010 18:55:01 +0000

Greece began with sales of ten-year bonds yesterday after the country has announced plans to significantly cut costs in order to reduce the budget deficit. This government is seeking to win back investor confidence, which drew aside from the financial markets in the country. It is expected that the price of bonds to be such as to bring a serious return to investors, as it is projected to amount to approximately 6,5 per cent, Bloomberg reported before familiar with the situation requested anonymity. For comparison, the yield of the current issue, which is due in July 2019 proposes return of 6,1 per cent. Because of the planned auction price of the instruments, allowing investors to protect the bankruptcy of Greece have risen for the first time in a week. Swaps for bankruptcy protection today to deal with 11 basis points more expensive. Among the measures to combat the deficit were increases in excise duties on tobacco and alcohol restriction on wages in the public sector and others. The plan is the budget deficit, which currently amount to 12,7 percent, to be shrunk to about 4 per cent at the end of the year.
The Greek government must sell bonds for 53 billion euros this year to cover their needs for funding, the agency added.